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Diversification when it hurts? The joint distributions of real estate and equity markets

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Knight, J., Lizieri, C. M. and Satchell, S., (2005) Diversification when it hurts? The joint distributions of real estate and equity markets. Working Papers in Real Estate & Planning. 16/05. Working Paper. University of Reading, Reading. pp20.

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Abstract/Summary

Much of the literature on the construction of mixed asset portfolios and the case for property as a risk diversifier rests on correlations measured over the whole of a given time series. Recent developments in finance, however, focuses on dependence in the tails of the distribution. Does property offer diversification from equity markets when it is most needed - when equity returns are poor. The paper uses an empirical copula approach to test tail dependence between property and equity for the UK and for a global portfolio. Results show strong tail dependence: in the UK, the dependence in the lower tail is stronger than in the upper tail, casting doubt on the defensive properties of real estate stocks.

Item Type:Report (Working Paper)
Divisions:Henley Business School > Real Estate and Planning
ID Code:20948
Publisher:University of Reading
Publisher Statement:The copyright of each working paper remains with the author. If you wish to quote from or cite any paper please contact the appropriate author; in some cases a more recent version of the paper may have been published elsewhere.

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